Shopping Centres

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GUEST OBSERVER
Woolworths shareholders have had a torrid couple of years. The company’s market capitalisation is down around a third since mid-2014 – quite a hit for a company once worth almost A$50 billion dollars. Today it forecast a 35% fall in half-year profit, sending its shares plunging by more than 9%.
The disastrous Masters foray is partly to blame. Conceived in oligopolitical hubris, Masters has been an unmitigated disaster for Woolworths shareholders. They were right to expect far better from the company’s exceedingly well-remunerated board and senior executives. The fact that Masters has ended quite a few careers is cold comfort for shareholders who have lost hard earned savings and superannuation.
Today’s results open a new chapter of woe. Once, Masters was seen as an unfortunate sideshow, able to be separated from the Goliathan strength of Woolies’ grocery cash machine. Today, the illusory nature of that misapprehension has emerged – with sales in decline year-on-year for like stores, and a flagged collapse of earnings by up to a third and, most tellingly, no end in sight.
While the problems of the last 18 months at Woolworths have often been ascribed to the Masters debacle, analysts have long been worried about the main game in groceries. Aldi, the privately-held German multinational, has been playing a cautious and patient long game.
Aldi’s “value proposition” to consumers is starkly different to both Woolworths and Coles, and it’s clear Australians have warmed to what Aldi has to offer – a narrow range of good quality products at prices equivalent to the majors’ “specials”. The narrow range and small format stores have the additional benefit of quick and easy shopping for busy consumers. Woolworths has been losing market share quickly.
Its response has so far been too little and too late. Woolworths has tried to “shoehorn” an Aldi equivalent into the lower shelves of its large format stores. It suggests to consumers that they can get a basket of goods similar to Aldi’s at the same price within their stores if they look hard enough. In this regard – to paraphrase the late, great Z.Z. Hill - what Woolies are selling, Australians ain’t buying.
The limited success of this “Aldification” of Woolworths stores has, however, done damage to Woolworths' core business of groceries. Whenever consumers choose the low cost goods within Woolworths, it is at the expense of the higher margin goods they also have for sale. This is evidenced by the steep decline in margins reported today – with sales in slight decline (2.5%) and projected earnings in free fall (28 to 35%). Woolworths is learning the hard way that while revenues are easy to lose, the same can’t be said for the fixed costs involved in running a national retailer.
In the background, again, lies Masters. Its disastrous drain on revenues has meant Woolworths has had little to invest in new stores elsewhere. While Woolworths has opened six new stores during the quarter, Aldi has flagged the opening of up to 80 new stores during 2016, on top of the 80 it opened this year. Its expansion is uncannily like a German train timetable and its geographical spread means most of these new stores will not cannibalise existing sales – something Woolworths can rarely achieve.
John Rice is professor of management, University of New England and can be contacted <a href="https://theconversation.com/profiles/john-rice-93120" target="_blank">here</a>. Nigel Martin is lecturer, College of Business and Economics, Australian National University and can be contacted <a href="https://theconversation.com/profiles/nigel-martin-117971" target="_blank">here</a>.
Both are authors for The Conversation.
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jchancellor-FAypfDUnLy

The ‘Aldification’ of Woolworths is destroying its value

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Vicinity Centres has announced a progress update asset divestment program, with the sale of a portfolio of 10 sub regional and neighbourhood shopping centres to SCA Property Group.
They also sold one Neighbourhood shopping centre to a private investor, for an aggregate sale price of $631.0 million.
The aggregate sale price of $631.0 million reflects a 5.1% discount to the combined 30 June 2018 book values of the eleven assets and a weighted average capitalisation rate of 6.9%.
Vicinity has now divested 35 shopping centres for more than $2.5 billion at a 0.5% premium to book value.
Discussions are noted to be underway with prospective purchasers of three remaining assets included in Vicinity’s divestment program.
Mr Grant Kelley, Vicinity’s CEO and Managing Director, said “These transactions are a significant achievement and advance our strategy to unlock major potential in the business.”
“It is an important step in delivering strong and sustainable growth through focusing our directly-owned portfolio on approximately fifty market-leading destination assets, expanding our wholesale funds platform and realising mixed-use opportunities across the portfolio.”
SCP will acquire ten assets for a total consideration of $573.0 million. Settlement of these transactions is expected later this month.
<img src="https://www.urban.com.au/images/2018/10/3/Vicinity%20centres.JPG" alt="">
The sale of Belmont Village (pictured above) in Victoria to a private investor for $58.0 million was settled at the end of September .
As at 30 June 2018, the eleven assets sold had specialty sales per square metre averaging $7,611. 
Vicinity’s FFO guidance for FY19 remains unchanged at 18.0 to 18.2 cents per security.
Assuming the sale proceeds of the eleven non-core assets are used to repay debt in the short-term, gearing would be reduced by approximately 280 basis points.
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j.ballantyne1990-6AQqhLzZaK

Vicinity sells eleven shopping centres for $631 million

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Retail and residential property took the headlines last week with several of the big participants in those sectors reporting their results for 2015.
Major shopping centre owners said sales conditions for their malls were improving, but still challenging, while property values were rising due to investor demand for income-producing assets.
Charter Hall Retail REIT, which owns small and neighbourhood shopping centres, lifted its statutory profit by more than 90% to $162.5 million driven by increases in the value of its shopping centre properties.
“Ongoing investor interest in this asset class has resulted in yields for high quality assets tightening sharply over the past 12 months and as such we are expecting to see growth in the value of the REIT’s portfolio over the 2016 financial year,” chief executive Scott Dundas said.
The REIT’s operating profit was up 5.2% to $110.8 million.
Federation Centres, which merged with Novion Property Group in June to form a $22 billion REIT, reported a $675.1 million statutory profit for the 2015 financial year, and underlying earnings of $683.1 million, up 6.2%.
Comparable specialty store sales were up 3.3%, an improvement on the 2.4% sales growth the previous year. Comparable net property income growth was 2.5%, up from 1.2%.
However, the REIT’s leasing results were weaker with negative 2.2% leasing spreads across the combined portfolio, worse than the negative 1.5% spreads achieved in 2014.
The relatively mature Novion Property Group assets dragged on that result, with negative 4.7% spreads. Managers of the Federation Centres properties were able to improve leasing spreads by 3.2% by changing tenant mixes.
The group recently replaced Federation’s chief executive Steven Sewell, who had been set to head the combined group, with Novion’s head Angus McNaughton.
McNaughton said the sector was slowly improving but expected consumer sentiment to fluctuate.
Shopping Centres Australiasia Property Group worked hard on its specialty store leasing through 2015, with a project targeted at improving occupancy rates. It spent $9.6 million on incentives such as assistance with fitouts for tenants.
“During FY15 we had 50 specialty tenant renewals, and an average rental uplift of 7.3% was achieved,” chief executive Anthony Mellowes said. “This is a positive start to our first rent renewal cycle which will continue through FY16 to FY20.”
Specialty stores in SCA’s centres lifted sales by 5.6%.
Stockland Property Group, which derives about 60% of its earnings from retail property, reported earnings in that division were up 4.2%.
Its shopping centres achieved their strongest specialty store growth in four years, rising 7%. Food catering and fast casual dining, communication technology, services, homewares and apparel were the best performing categories.
Residential
Many investors were more interested in Stockland’s residential division, with the group being one of Australia’s largest home builders.
Profits in that area were up 73.5% to $166 million.
Residential developers have used reporting season as a platform to call for discussion on topics such as the undersupply of homes in Australia and stamp duty. They have cautioned regulators not to go too far with moves to slow the housing market, which they say is varied across the country.
AV Jennings chief executive Peter Summers said stamp duty was holding up construction and adding to housing costs. That group reported before-tax profits were up 78.3% to $48.2 million, with improving housing markets lifting revenue by 26.9% to $317.9 million.
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zfielding-GvX3Uq9KTa

Fluctuating consumer sentiment prompts erratic REIT retail leasing results

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Neighbourhood shopping centre deals across Australia were recorded at $1.2 billion for the 12 months to June 2016, down from $2.6 billion in the previous year, according to recent research by Savills.
A neighbourhood shopping centre is generally defined in the industry as a local shopping centre comprising a supermarket and up to 35 specialty shops. The total gross lettable area of retail floorspace will typically be less than 10,000 square metres.
The sales figure was also own on the five-year average of $1.4 billion. 
In the year to June 2016, 56 neighbourhood shopping centres were sold against 91 the previous year and this is commensurate with the five-year average of 60 sales per annum. 
<a href="/images/2016/09/06/Screen%20Shot%202016-09-06%20at%201.34.50%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/06/Screen%20Shot%202016-09-06%20at%201.34.50%20PM.png" alt="">
There are several factors at work in the capital markets which are having an impact on asset prices. 
First, there is an abundance of debt and equity available to purchase prime commercial assets on current metrics; second, the pricing of debt and equity domestically, $500 and especially overseas, continues to fall; third, investment fundamentals are sound with no oversupply, little vacancy and good rental growth; and, finally, catchment area fundamentals remain appealing with strong population growth, low unemployment and stable Australian Retail to rising household incomes. 
<a href="/images/2016/09/06/Screen%20Shot%202016-09-06%20at%201.35.46%20PM.png" target="_blank">Click to enlarge</a>
 <img src="/images/2016/09/06/Screen%20Shot%202016-09-06%20at%201.35.46%20PM.png" alt="">
Institutions remained active in the investment market for the 12 months ended June 2016, purchasing 39 percent of all neighbourhood shopping centres sold.
Private investors continue to pursue neighbourhood shopping but are now being outpriced by institutions. Also of particular note is the emergence of foreign investors purchasing 29 percent of neighbourhood shopping centres sold.
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jonathanchancellor-7SQnKwU6yx

Neighbourhood shopping centre deals down sharply in year to June 2016: Savills

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Changes in consumer spending patterns since 2007 appear to have hurt retailers, such as department stores, apparel and discretionary retailing, according to Savills research.
The Australian Sub Regional Shopping Centres report says consumer spending has impacted tenants in regional and some sub regional shopping centres though some sub regional shopping centres have been immune from this.
The ABS turnover statistics in the accompanying table show strong growth over a long period in most of the retail categories found at a sub regional shopping centre. Supermarkets have been enjoying strong turnover growth as have their associated liquor stores.
Discount department stores dealing in electronics, household goods including furniture and discount clothing have also enjoyed strong turnover growth. Associated specialty stores such as a chemist, a take away food store, a bakery, a newsagent and other local service providers such as a dry cleaner may be found in the tenancy mix.
<a href="/images/2016/09/20/consumer1.png" target="_blank">Click to enlarge</a>
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The structural issues facing retail are more formidable but not insurmountable. Savills expects the retail sector to evolve to take advantage of the structural issues rather than be over-run by them.
The ageing of the population will continue to create challenges for retailers as they jockey for the dollars of retirees. Retirees can be expected to prefer services over goods and will not necessarily continue to dwell in their traditional catchment areas.
Internet retailing has already changed the face of retailing for certain categories of goods and will no doubt continue to evolve and challenge more categories over time. New business models are establishing themselves.  
 
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prateek24-ezbwHMbNAk

Consumer spending habits and their impact on sub-regional shopping centres

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AMP Capital's managing director of shopping centres Bryan Hynes is stepping down after just over nine years in the role.
In his time in the top job Hynes has grown AMP Capital's shopping centres portfolio from $4 billion to $10 billion.
The portfolio now has 27 centres throughout Australia and New Zealand which generates more than $7.9 billion in annual sale.
Hynes had spent 18 years at AMP Capital, holding senior roles including Warringah Mall general manager and head of retail asset management.
As of January 1 2017 AMP Capital's head of shopping centre development Mark Kirkland will take over the role.
AMP Capital's global head of real estate Carmel Hourigan said that Marks skill set will help the company target their next phase of growth.
“With 27 years of major project experience in the property sector, 24 years of which have been focused on retail, Mark brings an impressive skill set to take our Shopping Centres business to the next phase of growth. 
“Mark has been instrumental in the successful delivery of Pacific Fair and Macquarie Centre and has contributed heavily to the efforts we have undertaken to maximise the value of the existing portfolio and enhance performance for our investors.
“Now that AMP Capital has delivered these successful developments on the east coast and will be turning our attention to developments in Western Australia, it is the right time to refocus the business under new leadership and I am pleased we have such a strong internal candidate in Mark. 
She also acknowledged Bryan's contribution over the last nine years.
“I would like to acknowledge Bryan’s significant contribution to our business, most recently leading the team in the delivery of award-winning developments at Pacific Fair and Macquarie Shopping Centres. 
"I would like to thank Bryan for the legacy he has created and his efforts in ensuring AMP Capital is best positioned to capitalise on opportunities within the real estate market.”
  
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Bryan Hynes, AMP Capital's managing director of shopping centres, is stepping down

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The Eli Waters Shopping Centre in the Queensland town of Hervey Bay has hit the market.
It is anchored by a 3,757 square metre full-line Woolworths supermarket, secured on a 20-year lease until September 2027 plus options until 2047.
It also features 23 specialty shops, one kiosk, four ATMs and one DVD kiosk.
The centre has a gross lettable area of 6,338 square metres and it is located at 2 Ibis Boulevard at the intersection of Maryborough-Hervey Bay Road, a major arterial route from Maryborough and the areas west of Hervey Bay.
It is being marketed for sale by Peter Tyson and Jon Tyson of Savills with offers closing 6 April 2017.
Tyson said the centrebenefits from a population of over 38,000, forecast to grow to 50,000 plus by 2013.
“The centre is arguably the most convenient food and service offer in Hervey Bay with ample grade level parking, a simple retail layout featuring two mall entries and excellent exposure,” he said.
“With the strong ongoing demand in the neighbourhood shopping centre asset class, we expect a high level of investor interest in this opportunity due to its quality tenancy profile and large, fast-growing catchment.”
Hervey Bay is on Queensland's Fraser Coast, approximately 290 kilometres north of Brisbane.
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Hervey Bay shopping centre hits the market

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Tesla owners can now charge their cars for free at Stockland retail centres, with Stockland announcing a $200,000 national roll out of Tesla Destination Chargers across 31 shopping centres from Cairns to Melbourne.
The Tesla Destination Charger rollout complements Stockland’s 17 free Charge Point facilities at 10 locations in Australia, which have been used more than 2,000 times by customers since 2015, it said.
Hon Craig Laundy MP, Federal Assistant Minister for Industry, Innovation and Science joined Stockland to charge up the first Tesla vehicle at Stockland Cammeray shopping centre in Sydney.
Laundy said it was great to see two companies committed to sustainability working together to expand low emissions technology.
Apart from EV charging networks, Stockland has previously invested $4.8 million in solar projects installed across its Shellharbour, Wetherill Park Green Hills and Nowra shopping centres in NSW. 
The shopping centres to have Tesla Destination Chargers will be as follows: 
<ul>
<li>NSW: Balgowlah, Cammeray, Green Hills, Jesmond, Merrylands, Baulkham Hills, Wetherill Park, Shellharbour, Bathurst, Nowra, Corrimal, Forster, Tamworth, Glendale, Wallsend</li>
<li>QLD: Cairns, Townsville, North Shore, Rockhampton, Bundaberg, Gladstone, Hervey Bay, Caloundra, Cleveland, Pacific Pines, Benowa Gardens, Burleigh Heads</li>
<li>VIC: Highlands, The Pines, Trarlagon</li>
<li>WA: Baldivis</li>
</ul>
Stockland says it has the most Green Star rated shopping centres in Australia.
“We’re proud to be leading the sector in sustainability and investment in this type of infrastructure and renewable energy which is so important to the future of our shopping centres and cities”, said John Schroder.
Stockland was recognised as the most sustainable real estate company in the world in the 2016-2017 Dow Jones Sustainability Index (DJSI) and achieved Global Sector and Regional Sector Leader status in the 2016 Global Real Estate Sustainability Benchmark (GRESB) survey in the category Diversified - Retail/Office.
Stockland Group executive and CEO of Commercial Property, John Schroder, said the initiative was part of the company’s broader focus on innovation, which included using social robotics in retail while increasing convenience for customers while they shop or dine.
“Just one hour connected to a Tesla Destination Charger provides up to 81 kilometres of range. We are excited to roll out these convenient facilities across our retail portfolio, allowing shoppers to plug in for free,” he said.
Schroder said the evolving retail landscape meant that technology was increasingly critical to drive innovation, efficiency and sales.
“We know EV vehicles are part of the future and we look forward to offering more features like this to meet continuing Australian demand,” said Schroder.
“It is integral that Australian shopping centres continue to evolve and adapt to retailer, customer and global demands.”
 
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Stockland rolls out Tesla charging network at its shopping centres

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Shopping centre landlords are charging retailers “crazy” rents, franchise operator Stan Gordon has said, while urging landlords to be realistic or retailers would quit their malls in droves.
Gordon is managing director of Franchised Food Company, which has more than 200 outlets across brands like Cold Rock, Whippy, Pretzel World and Trampoline.
"The retail market is not fantastic, it's very tough. All we are asking for is fairness. We can't be in malls just to break even while making the shopping centre owners rich," Gordon was cited as saying by The Australian Financial Review.
He said the owners of Chadstone Shopping Centre in Melbourne (Vicinity Centres and the Gandel Group) asked three of its franchisees "crazy rents" when they were given the opportunity to move back in after refurbishments. 
"We told them we cannot make it work at these rents," Gordon said. 
A spokeswoman for Vicinity Centres declined to comment.
Gordon said retailers are being held for ransom by some shopping centres that had annual rent increases of 5 per cent, almost 3 percentage points more than inflation.
"Yes, these shopping centres are often undergoing multimillion-dollar upgrades – another reason for the unsustainable increases in rent – but this is only in response to the rise of online shopping," he told the AFR.
Fast-food franchise <a href="https://www.urban.com.au/expert-insights/investing/73263-sumosalad-close-to-winning-rental-dispute-with-landlord-westfield" target="_blank">SumoSalad put two of its 20 companies into administration</a> in June to force landlord Westfield to negotiate on rents and is close to a lower rent agreement, according to recent developments.
Gordon pointed out that staff penalty wages should drop if retailers are to remain profitable in the high-rent environment.
Claims that shopping mall landlords are oversaturating their centres with food outlets were rebutted by Peter Allen, the chief executive of Westfield landlord Scentre Group.
Allen said while retail space allocated to "food catering" was growing by 4.5 per cent, food sales were increased by 6.8 per cent.
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Shopping mall landlords charging 'crazy rents', says franchisor Stan Gordon

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Westfield shopping centre manager Scentre Group has rejected SumoSalad's claim that increase in other food outlets at its centres was hitting its sales, saying sales growth has in fact outpaced the increase in retailers.
Retail space allotted to "food catering" has grown by 4.5 percent since 2008, but sales for food catering rose by 6.8 percent, Scentre chief executive Peter Allen told The Australian Financial Review in an escalation of the landlord-tenant battle.
Fast food chain SumoSalad put<a href="https://www.urban.com.au/expert-insights/investing/71650-sumosalad-puts-two-outlets-into-voluntary-administration-in-rent-dispute-with-landlord-westfield" target="_blank"> two of the 20 companies</a> in the group into after trying to negotiate cuts in leasing charges over six months with Westfield. The move was aimed to force Westfield to the negotiating table. 
SumoSalad CEO and co-founder Luke Baylis said the dispute arose after the shopping centres decided to dramatically expand the number of food outlets within shopping centres.
But Allen was of a different view.
"What we are seeing is that our productivity, our sales per square metre is increasing. So even though we are increasing [food catering] space, retail is doing better," Allen said at the Australia-Israel Chamber of Commerce retail briefing in Sydney.
"We have got to be very careful we don't mix up what we are trying to do in terms of having a competitive environment with the business performance of retailers."
Scentre and SumoSalad were still negotiating, he added.
"SumoSalad, that's a franchisee model. How good is the model, we don't know," he said.
Allen said each mix of retailers has been curated carefully, and an increase in outlets was a means of wooing more shoppers.
Westfield’s focus on ensuring that retailers were profitable by having a profit formula shared by both parties is part of its strategy to counter the threat from online shopping.
"We have a a population which is growing and we are taking a bigger share of that catchment. We are not taking from other retailers in the centre," Allen said.
He received support from Harris Farms Markets co-founder Catherine Harris, who was also on the panel on Thursday.
Harris said landlords had changed and were collaborating with tenants rather than working against them.
"I find that centres want to genuinely help retailers. That's a huge change from 10 years ago when landlords say they are the boss," she told the AFR.
If smaller retailers were not able to make it work in "larger centres", smaller neighbourhood ones or going independent were options, but only if the brand was strong enough, she said. 
"You can go to a neighbourhood centre, but you need the brand to bring in shoppers. And big centres do that for you," Harris said.
Harris Farm have recently snapped up a commercial strata space that they occupy at 24-30 Springfield Avenue, Potts Point for $11.75 million. 
Eric Lundberg and William Shen of TGC handled the sale which represents $11,900 per square metre.
It was sold returning $1.046 million nett PA. 
TGC noted "Woolworths recently signed up for a second store in the area and Aldi were also keen to open a supermarket in the area but are finding it difficult to secure a 1500 sqm box."
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